CLEARING THE AIR

Lately, I have received lots of calls and emails on whether the Washington State and Liquor and Cannabis Board (the “Board”) is finally going to allow out of state investors in Washington’s cannabis marketplace. This article is intended to clear the air regarding the current state of things on the out-of-state investor front.

First, the Washington State Board has only proposed its new rule regarding out of state financing; it has not adopted that new rule yet. The Los Angeles Times broke the story in an article entitled “How New Rules in Two States Could Give Birth to Big Marijuana” and, for whatever reason (probably the story’s headline), many people interpreted this story to mean the Board had actually passed the rule, which is incorrect. The Board is set to take public comment on the new proposed rule until May 4 and if it were to adopt it, it won’t even take effect until June of this year.

What also seems to be getting lost in translation is that even if adopted, the new rule will only remove the existing six-month residency requirement for out-of-state lending only. For instance, if you live in Nevada and want to take an equity position in a Washington State licensed cannabis business or if you expect a percentage of net or gross profit, you still need to show Washington residency of at least six months.

“If this bill were to pass, out of state U.S. citizens could take up to 49 percent equity in a Washington cannabis business.”

It is true that the Washington State Legislature is considering allowing out-of-state ownership of cannabis-licensed businesses via House Bill 2364, which came out in January. Two substitute versions of the bill were proposed in the House, one of which came through in March during the legislature’s first special session. This proposed legislation limits cannabis licenses to the following:

A business entity or nonprofit entity, unless formed under the laws of this state or holding a certificate of registration under chapter 23.95 RCW, and provided that:

“More than 50 percent of the interest in the entity is held by one or more interest holders who lawfully reside in the state; and all interest holders who are not state residents are resident citizens of the United States.”

If this bill were to pass, out of state U.S. citizens could take up to 49 percent equity in a Washington cannabis business. In addition, the Board would have “discretionary authority to deny a license or license renewal to an entity if [the Board] is unable to investigate a nonresident interest holder in the entity in accordance with the investigatory standards applicable to the investigation of a state resident.”

The Washington State legislature concluded its first special session on March 29 and neither the Governor nor two-thirds of both houses have called for another special session. This means that we will not see this bill picked up again until the next regular session, which won’t be until January 2017.

For now, the Washington cannabis marketplace will rely solely on the Board’s discretion regarding out of state financing through tweaking of current rules. So, don’t get too excited about out of state money coming into Washington State, as it’s going to be a while before out of staters can really invest.